Key Regional Fed reports

Mid-Atlantic manufacturing remains sluggish, bad news for NVR?

The Richmond Fed Manufacturing Survey looks at business conditions in the Fed’s fifth district, which covers Washington, DC, Baltimore, Richmond, and Charlotte The Richmond Fed Manufacturing Survey is sent out to companies in the Mid-Atlantic states and covers current business conditions, shipments, new orders, backlog, and inventory. It’s similar to the other surveys put out by some of the other Federal Reserve districts, like the Chicago Fed National Activity Index and the Empire State Manufacturing Survey. It weights shipments 33%, new orders 40%, and employment 27%. It also asks respondents about their forecast for the next six months. While it isn’t necessarily a market-moving index, it provides a top-down view of how the economy in general is doing, at least in the Mid-Atlantic region. It’s important to note that Washington, DC, is part of the index, and business there ties heavily to government spending, which may or may not correlate with economic growth.

Manufacturing activity fell somewhat in March, but the outlook remains optimistic The index of overall activity fell 1 point in march after a negative February. Shipments slipped 3 points, while new orders were flat. Capacity utilization declined, along with backlog, and inventories fell slightly. Overall, the current activity was nearly flat with February. Many participants noted that raw material pricing was increasing, and finished goods pricing finally rose as well. For the last few surveys, manufacturers haven’t been able to pass along price increases to customers. This may be changing, which would be music to the ears of the Fed. Regarding the outlook, respondents were slightly more optimistic about the future than they were a month ago. The index for expected orders and shipments rose to 31 and 30, respectively,and expectations for future hiring jumped 10 points to 22.. Implications for homebuilders Overall, the report shows the economy stuck in neutral—at least in the Mid-Atlantic region. This index is notoriously volatile, so it’s important to look for trends, and at the moment, there doesn’t appear to be any. The homebuilder with the most exposure to the Richmond area is NVR Corp (NVR), which should report fourth quarter earnings shortly. The West Coast housing market seems to be cooling, and other previously tepid ones are picking up. That said, the Richmond Fed index covers the Washington DC area, which lives in its own economic world, insulated from the economic winds that seem to hit everyone else. The other surveys seem to be showing manufacturing increasing in general, which is good news for builders like PulteGroup (PHM), D.R. Horton (DHI), and Lennar (LEN). Investors who want to invest in the entire homebuilding sector as a whole should look at the S&P SPDR Homebuilder ETF (XHB).